Back in the day, farm succession planning was simple – provided you had a capable son to take over the farm.
We have been part of significant litigation in respect to farm succession planning when things go wrong. The Court is no longer in favour of one family member inheriting the main family asset, and often this is not something that is agreeable to the family as a whole.
There are competing interests that need to be considered when deciding how to plan ahead for your retirement from the farm. Firstly, you need to think of yourself and what you need to be able to retire. Secondly, you need to think of the farm itself – what is the best way for this farm to continue and stay profitable? Thirdly, you need to think about those that have worked on the farm, who have contributed to the farm’s value and have put their blood, sweat and tears into making it what it is today. Finally, you need to consider your family and their needs.
There are certain laws that apply to succession planning in general, but become important when dealing with a significant asset, like a farm. The Family Protection Act provides that you must discharge a moral duty that you may owe to certain people, such as your children and grandchildren. The Testamentary Promises Act says you must make provision from your estate if you have promised something to someone and they have relied on that promise to their detriment. In other words – has someone worked on the farm for years with the view that they were going to inherit it?
We will discuss these obligations and considerations in part two of this article. There are many options available to farm owners and we are happy to discuss your various options with you.
Competing Interests (13/01/2020)
In Part 1 of this article, we briefly outlined some of the competing interests that need to be taken into consideration when it comes to succession planning of farms and farm assets. The main competing interests are: what’s best for you; what’s best for the farm; and what’s best for those around you, such as your children and those who have worked on the farm?
Another important consideration is your partner or spouse. Often farms and farm assets have been passed down through a family. So, what happens if someone marries, or enters into a de facto relationship? What if the partner also works on the farm and contributes to its value?
In this scenario, the Property (Relationships) Act 1976 could apply. Generally speaking, it is only the farm house and immediate surrounding area (the curtilage) that could be subject to the Act and therefore at risk of a claim. However, you should get advice on this.
The Act applies on “separation” – but separation can occur not just if the parties’ relationship breaks down, but also on death. Accordingly, if your spouse was to pass away, their children or personal representatives could make a claim on your deceased partner’s’ behalf.
In this case, any property clawed back into that partner’s estate in this way could be subject to division amongst their children or beneficiaries under their Will, or by way of a claim under the Family Protection Act 1955.
This uncertainty can be avoided with careful planning. We can assist you with a Contracting Out Agreement (sometimes called a Pre-Nup), or with advice on how the farming business can be operated, for example, through a company or a trust.
If you need advice, don’t be afraid to ask. Prevention is better than cure.